What the Hell Is Bitcoin and Why Should You Care?

One of the trending topics on Facebook this week -- a pretty good indicator of what people are talking about online -- was Mt. Gox. The vast majority of people have probably never heard of the the strange sounding company, but its bankruptcy could have a significant impact on other companies invested in the new money changing technology Bitcoin. Your next question is probably what is Bitcoin? And, more importantly, why is it such a big deal?

In simplest terms, Bitcoin is a form of currency, but instead of paper or credit cards, it is stored virtually and exchanged through a peer-to-peer network. Some believe Bitcoins are the future of banking transactions, perhaps even paper money, but it is still in its infancy with a long way to go to even become a viable source of money transfers.

The technology is similar to PayPay or Google Wallet, but without the need to be connected to a bank or credit card, so it has been involved in illegal activity, but it does have some promising applications and could provide an alternative to traditional banking.

If you like this story, consider signing up for our email newsletters.

SHOW ME HOW

Newsletters

SUCCESS!

You have successfully signed up for your selected newsletter(s) - please keep an eye on your mailbox, we're movin' in!

But, because it is still an emerging technology and has had a bit of a rocky past -- albeit a short one -- it is considered volatile. In the case of Mt. Gox, that volatility includes financial troubles and massive theft, one of the major worries that has come from financial experts since Bitcoin came into being. The very fact that it was invented by someone who only operates under a pseudonym is not exactly comforting to people who are guarding people's money.

If you have made it this far, you are probably thinking to yourself, "This serves no purpose for me." That may be true, but any changes in the financial world are worth watching. Recent reports from major banking institutions indicate Bitcoin may yet be an option that could bypass transfer and credit card fees in the future, assuming it can be brought under some degree of control.

But the collapse of Mt. Gox places that future in jeopardy. It will be up to companies like SecondMarket, which intends to create a sort of stock exchange for Bitcoin hoping the influence of investors and banks will help to stabilize the digital currency.

For the moment, you are safe sticking with your debit cards, cash and even checkbooks -- assuming you are an elderly woman in the express line at the grocery store -- but digital money exchanges are growing in use and they bear watching, assuming Bitcoin survives.

Jeff Balke is a writer, editor, photographer, tech expert and native Houstonian. He has written for a wide range of publications and co-authored the official 50th anniversary book for the Houston Rockets.